The Reserve Bank of India’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, today unanimously decided to hold its repo rate at 5.50%, keeping the policy stance Neutral. This follows a sharp 50 bps cut in June, bringing total easing in 2025 to 100 bps.
The pause allows previous cuts to filter through and gives policymakers leeway to act later if needed.
Growth Outlook: Steady Momentum Amid Global Headwinds
The RBI has retained its real GDP growth forecast at 6.5% for FY26, unchanged from its previous estimate—despite the challenging external environment. Quarterly growth projections remain at:
Q1: 6.5%
Q2: 6.7%
Q3: 6.6%
Q4: 6.3%
Domestic demand—especially rural consumption and agriculture—is proving resilient, even though industrial activity remains subdued, while the services sector is expected to continue its buoyancy in the months ahead.
Inflation Forecast: Revised Down to 3.1%
The inflation outlook has improved significantly. The RBI has revised its full-year CPI forecast to 3.1% for FY26, trimming nearly 60 bps from earlier projections of 3.7%—thanks to easing food costs and improving monsoon prospects. However, the bank acknowledges future risks from volatile food prices and global developments.
Policy Tone and Risks
Maintaining a Neutral stance gives the RBI flexibility. As Governor Malhotra put it, policy will remain data-dependent: further cuts are possible if growth softens, or rates may be raised if inflation re-accelerates.
Major concerns include geopolitical tensions and global trade uncertainty, notably U.S. tariff threats on Indian exports—these could shave off up to 40 bps from the 6.5% growth forecast and weigh on investment sentiment.
What This Means for Investors
Interest rates are likely to stay on hold in the near term as the RBI monitors how June’s rate cuts percolate through the economy. Liquidity remains abundant, and policy flexibility is key.
While growth appears healthy and inflation appears contained, watch for downside surprises—especially from food price shocks, trade policy shifts, or a weaker-than-expected industrial rebound.
Key Takeaways
Repo rate: Held at 5.50%
Policy stance: Neutral, flexible, and data-driven
GDP growth forecast: 6.5% for FY26, with stable quarterly projections
Inflation outlook: Revised lower to 3.1%, but downside risks remain
Risks: Global trade frictions, geopolitical instability, and inflation spikes
Final Thought
Today’s decision strikes a thoughtful balance—supporting growth without stoking inflation. The RBI is signaling confidence in India’s economic resilience but remaining cautiously watchful amid a volatile global backdrop. Investors should stay tuned to upcoming data points—especially on food prices, industrial recovery, and global trade developments—for signals on the RBI’s next move.
Disclaimer
This blog is purely for educational purposes and should not be considered investment advice. Please do your own research or consult a registered financial advisor before making any investment decisions.